A1016
Title: Dynamic impact of decarbonization budget neutral fiscal policy on preferences, output and employment
Authors: Feridoon Koohi-Kamali - New School for Social Research (United States) [presenting]
Willi Semmler - New School for Social Research (United States)
Abstract: Neutral climate taxation, financing an equal amount of fossil fuel reduction, is a relatively neglected tool of environmental public policy, which we address here. A model-guided approach is first presented to study budget-neutral climate policy impacts on preferences based on equal price elasticities between high and low carbon-intensive sectors. Second, a panel data method is empirically used to consider long-run homogeneity for an assessment of a balanced budget CO2 diminishing policy on employment and output employing a demeaned tax subsidy formulation for a balanced budget variable that identifies periods of increasing and decreasing CO2 emission by respectively negative and positive CO2 log differences periods. Applied to a sample of 15 OECD economies over 1990-2023, the pooled mean group estimator has a better performance compared with other panel data models. Its long-run homogeneity assumption cannot be rejected, and policy coefficient estimates are significantly positive. The tests of the baseline model with cyclical time trend select the pooled mean group as the preferred model against the mean group and dynamic first differenced models. The model is stable, stationary, and robust to country-specific effects. The empirical outcome also confirms the model-guided approach that predicts the emission-reducing impact of budget-neutral fiscal policy on the energy transition.
